Is There a Value to Energy Independence?

Would energy independence protect us from higher gasoline prices?  Before we embark on a huge national energy conservation program, or a huge subsidy to drilling, let’s look at some economics and some facts.

If gasoline is traded in a world market, then no country will be insulated from changes in the market price.  That’s the theory that all of us economists agree with, though some would point out minor issues regarding taxes and transportation costs.

Data: Great Britain is energy independent (thanks to Bob Whelan for pointing this out to me).  Their North Sea production is just a hair greater than their domestic consumption.  So now let’s look at their gasoline prices.  In local currency, excluding taxes, petrol in Britain has risen 29%.  Gasoline in the U.S. has risen 27%.  So energy independence doesn’t protect consumers.

Greater energy production helps the producers, of course.  Less energy use may help consumers, assuming that they have not spent too much on capital or other energy alternatives.  But we’re not going to see $1.00 gas prices here when the rest of the world is paying $3.00

Business Strategy Implications:  Stick to running your business. Don’t hope for political answers to business questions.